Markets rally on rate cut hopes

Sensex jumps 195 points

Key share indices ended over 1% higher on Tuesday led by rate sensitive shares as the sluggish April IIP data re-inforced market expectations that the central bank could cut key policy rates and also lower the cash reserve ratio to boost growth.

The 30-share Sensex ended higher by 195 points at 16,863 and the S&P CNX Nifty jumped 62 points to close at 5,116 levels.

"A near-zero reading on IIP, along with the S&P downgrade warning has raised hopes that the RBI will reduce interest rates to support growth. We believe that the May inflation data as well as the developments in Greece over the next few days will influence the RBI’s decision to some extent. On the other hand, the rupee depreciation and the progress of monsoon may make the RBI wary as far as reducing interest rates is concerned," said Dipen Shah, Head (Fundamental Research), Kotak Securities.

In other global markets, European indices were trading flat, with investors nervous over reports of official preparations for a Greek exit from the euro zone and after details of the Spanish bank bailout plan renewed worries about the region's debt crisis. CAC, FTSE and DAX indices were up 0.5% each.

Japan's Nikkei share average fell on Tuesday, taking back half of Monday's gains as a promised bailout for Spanish banks left investors unconvinced that financial contagion would be contained, and doubts about the euro zone's future crept back.  The Asian markets closed the day in the red. Nikkei, Hang Seng and Shanghai ended lower by 0.4 - 1% each.

Back home, rate sensitive sector stocks witnessed buying interest on rate cut hopes. Maruti Suzuki, Tata Motors, Larsen & Toubro, State Bank of India, Mahindra & Mahindra, HDFC Bank, ICICI Bank, Hero MotoCorp, Bajaj Auto, BHEL and NTPC  from the rate sensitive pack were the top gainers among the Sensex stocks, up 1.3-3.5% each.

On the other hand, Dr Reddy's Lab, Wipro, Tata Power, HUL, and Sun Pharma were among the notable laggards from the heayweight pockets.

Buying was visible across the board barring healthcare stocks. BSE realty index was the top gainer on the sectoral front, up 2% or 33 points to close at 1,667 levels. Bankex, capital goods, auto, consumer durables, PSU, power and metal indices also ended higher by 1-1.9% each in trades today.

Godrej Properties was the top gainer from realty space, up 5.3% to close at Rs 606. HDIL, Unitech, Indiabulls Real Estate, Prestige Estates and DLF also ended higher by 2-4% each. From the banking space, Punjab National Bank, Canara Bank, Union Bank, IDBI Bank and Bank of india were the top gainers.

Shares of aviation companies such as Jet Airways, SpiceJet and Kingfisher Airlines ended higher by over 3% in otherwise weak market on hopes that state-run oil marketing companies may cut aviation turbine fuel (ATF) prices on lower crude oil prices.

Godrej Industries dipped 2.4% to Rs 239 extending its previous day’s fall after the promoters decided to reduce their holdings in the company to 75% from current 79% through issue of equity shares.

The broader markets ended flat. The BSE mid-cap index ended higher by 37 points at 6,013 and the small-cap index jumped 18 points to close at 6,357 levels.

The overall breadth was neutral as 1,361 stocks advanced while 1,312 stocks declined.